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Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit
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Historic Electronic-Trading Shift
Means Swift Service for Investors,
'Painful' Time for Brokers on the Floor

For some traders left working on the floor of the New York Stock Exchange, it appears the Big Board has dimmed the lights.

The exchange, a unit of NYSE Group Inc.,
is scheduled to finish today its long push to have its 3,618 securities traded almost exclusively electronically, a move that is translating into speedy service for investors. But for the employees who work on the NYSE's iconic trading floor it means fewer jobs and the biggest change to the way the Big Board has traded stocks in its 214-year history.

Wall Street Journal Video

Watch an NYSE floor trader show how electronic trading is changing his job.

Every day, more of the human brokers disappear. Big brokerage firms like Lehman Brothers Holdings Inc.
and J.P. Morgan Chase
& Co. have let go some floor brokers in recent weeks, between five and 10 people each. Merrill Lynch
& Co. has discussed with its brokers the possibility of transferring off the exchange.

Goldman Sachs Group Inc.'s
Spear, Leeds & Kellogg trading unit, one of the NYSE's elite "specialist firms" that match buyers and sellers on the floor, is expected to announce layoffs of at least 10 staffers this week, according to a person familiar with the matter. Van der Moolen Holding NV,
the Dutch company that owns a specialist firm on the NYSE, said yesterday it cut 30% of its U.S. staff, or about 50 people.

Bank of America has started plans to cut about 100 of its roughly 220 people at its specialist unit, and LaBranche
& Co. has already reduced staff on the floor to about 85 people from 190 before the NYSE started rolling out electronic trading in October.

"It's been a very painful" few months, says Michael Rutigliano, a longtime NYSE floor broker. "I understand why it's happening, but it's not pleasant when people you have admiration for are losing their jobs." Last week, traders gave departing colleagues standing ovations on about a dozen occasions when the laid-off employees left the floor for the last time.

As for investors, their trades are being executed much faster, which means they will more often be able to buy and sell at the price they see advertised. Right now, the market reverts back to human brokers bidding aloud, or "open outcry," only when stocks experience big moves, which happens about 1% of the time, versus almost all the time not long ago when only certain trades were executed electronically.

More Elbow Room: Traders work on the floor of the New York Stock Exchange this week.

But short-term volatility in stocks has risen a bit, meaning some investors are finding it harder to buy a stock at a predictable price through the day.

It's nothing short of a "monumental" change for the markets, says Mark Gurliacci, NYSE's vice president of strategic market analysis. He recalls that when he first started at the exchange in 1998, it was too crowded to visit the floor during the first and last hours of trading. Now, he says, dropping by anytime isn't a problem.

NYSE officials say because of the automation they can now handle far more trades. The specialist firms now handle far more stocks at each panel than they used to, because many of the bottlenecks created by human intervention are gone. Now, specialists, instead of overseeing trades in a handful of stocks, supervise computer programs that spit out thousands of trades a minute. One sign of the change: Specialist clerks that collectively banged their keyboards 45 million times a day have cut that to fewer than 20 million keystrokes.

"Everyone on the floor sees this as a negative, but this automation is a positive," argues Steven Grasso, a floor broker at the exchange who isn't related to former NYSE chief Dick Grasso. "It's a smarter and more-efficient business."

Though it's not always that lonely, there were more people in 2005.

The changes for investors are meaningful. In the securities where NYSE has already turned on the expanded electronic trading, the average time to complete a trade on the Big Board has fallen sharply -- to about three-tenths of a second from nine seconds before. It hopes to reduce the average trading time by an additional 90% this year. This week, the NYSE adds the final 100 or so securities to its list of electronically traded stocks.

Electronic trading has proved popular since the NYSE removed the restrictions in the fall that have existed for years on the size and frequency of automatic orders. (The maximum size grew from 1,099 shares to one million.)

In stocks where the restrictions have been lifted in the past 16 weeks, 80% of the share volume is now electronic, up from about 19% before the change.

One potential side effect: higher volatility for stocks in short time frames. NYSE says the average $100 stock trading electronically is moving 12.12 cents over a five minute period, up 7% from the 11.33-cent trading range in the 30 days before the stocks went electronic.

The increased volatility could make buying shares trickier for investors, increasing the instances where investors see prices move with little fundamental change to the underlying company. The NYSE says the volatility increase is small and that NYSE stocks are still less volatile than similar stocks traded on the fully electronic Nasdaq Stock Market
.

Nasdaq disputes that with statistics it provided from 2005. Still, the NYSE says it is making changes that may reduce volatility.

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General Motors Co. Chief Executive Mary Barra earned $16.2 million in a choppy first year at the helm, a pay package that far outpaces her predecessor’s compensation and exceeds the initial target set by the board when she took the job.

Footnotes*

Real-time U.S. stock quotes reflect trades reported through Nasdaq only; comprehensive U.S. stock quotes reflect trading in all markets and are delayed at least 15 minutes. All quote volume is comprehensive and reflects trading in all markets, delayed at least 15 minutes. International stock quotes are delayed as per exchange requirements.

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